*

Law passed by Congress increased companies' interest in

issuing

stablecoins

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Citi could be custodian of Treasuries and cash backing

stablecoins

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Bank also considers stablecoin payments and conversion

services

to dollars

By Tatiana Bautzer and Hannah Lang

NEW YORK, Aug 14 (Reuters) - Citigroup ( C/PN ) is

exploring providing stablecoin custody and other services, a top

executive told Reuters, in a further sign sweeping policy

changes in Washington are spurring major financial firms to

expand into the cryptocurrency business.

The U.S. bank is among a handful of traditional institutions,

including Fiserv and Bank of America, considering pushing into

stablecoins after Congress passed a law paving the way for the

crypto tokens to become widely used for payments, settlement,

and other services. Stablecoins are cryptocurrencies pegged to a

fiat currency or another asset, commonly the U.S. dollar.

That law requires stablecoin issuers to hold safe assets

such as U.S. Treasuries or cash to back the digital coins,

creating opportunities for traditional custody banks to provide

safekeeping and administration of the assets.

"Providing custody services for those high-quality assets

backing stablecoins is the first option we are looking at,"

Biswarup Chatterjee, global head of partnerships and innovation

for Citigroup's ( C/PN ) services division, said in an interview. Citi's

services business, which includes treasury, cash management,

payments, and other services to large companies, remains a core

unit for the bank, which has been undergoing a major

restructuring.

A McKinsey study estimates about $250 billion in stablecoins

have been issued so far, but are mainly used to settle

cryptocurrency trades. While Citigroup ( C/PN ) said last month it was

considering issuing its own stablecoin, the bank has not

previously discussed its broader digital asset plans.

Citi is also exploring custody services for digital assets that

back crypto-related investment products. For example, many asset

managers have launched ETFs tracking the spot price of bitcoin

since the Securities and Exchange Commission authorized such

products last year.

The largest bitcoin ETF, BlackRock's iShares Bitcoin Trust

, has around $90 billion in market capitalization.

"There needs to be custody of the equivalent amount of digital

currency to support these ETFs," Chatterjee said.

Currently, crypto exchange Coinbase dominates that

business. In a statement, a Coinbase spokesperson said the

company serves as the custodian for more than 80% of issuers of

crypto ETFs.

Citi is also exploring using stablecoins to speed up

payments, which in the traditional banking system typically take

several days or longer.

Currently, Citi offers "tokenized" U.S. dollar payments that

use a blockchain network to transfer dollars between accounts in

New York, London, and Hong Kong 24 hours a day. It is developing

services to allow clients to send stablecoins between accounts

or to convert them to dollars to make instant payments, and is

talking to clients about the use cases, Chatterjee added.

Once wary of allowing traditional financial firms to expand into

the often-volatile crypto sector, banking and securities

regulators under U.S. President Donald Trump's crypto-friendly

administration are taking a more relaxed stance on the sector.

Still, Citi and other firms would have to comply with

current regulations, including money laundering and currency

controls in some countries for international transfers.

Chatterjee said the custody of crypto assets needs to ensure

these assets, prior to being acquired, were used for legitimate

purposes, and also strengthen cyber and operational security for

safekeeping and theft prevention. The issuance of a stablecoin

by the bank is also under consideration, Chatterjee added.